Chapter21

Exempt
Transactions
EXEMPT VERSUS ZERO-
RATED TRANSACTIONS
In a VAT-exempt transaction, the
sale of goods, property or services and
the use of or lease of property is not
subject to value-added tax (output tax)
and the seller is not allowed any tax
credit or deduction on value-added tax
(input tax) previously paid.
 VAT-EXEMPT TRANSACTIONS

A. Sale or importation of agricultural

and marine food products in their
original state, livestock and poultry of a
kind generally used as, or yielding or
producing foods for human
consumption; and breeding stock and
genetic materials therefore.
B. Sale or importation of fertilizers,
seeds, seedlings and fingerlings, fish,
prawn, livestock and poultry feeds,
including ingredients, whether locally
produced or imported, used in the
manufacture of finished feeds(except
specialty feeds for race horses, fighting
cocks, aquarium fish, zoo animals and
other animals generally considered as
pets);
C. Importation of personal and
household effects belonging to
residents of the Philippines returning
from abroad and non-resident citizens
coming to resettle in the Philippines;
Provided, That such goods are exempt
from customs duties under the Tariff
and Customs Code of the Philippines;
D. Importation of professional instruments and
implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel,
aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to
settle in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such persons,
or arriving within 90 days before or after their arrival,
upon the production of evidence satisfactory to the
Comissioner of Internal Revenue, that such persons
are actually coming to settle in the Philippines and
that the change of residence is bonafide;
E. Services subject to percentage tax
under Title 5.
F. Services by agricultural contract
growers and milling for others of palay
into rice, corn into grits, and sugar
cane into raw sugar;
G. Medical, dental, hospital and
veterinary services, except those
rendered by professionals. Laboratory
services are exempted. If the hospital
or clinic operates a pharmacy or drug
store, the sale of drugs and medicine is
subject to VAT.
H. Educational services rendered by
private educational institutions duly
accredited by the Department of
Education, the Commission on Higher
Education and the Technical Education
and Skills Development Authority and
those rendered by government
educational institutions.
I. Services rendered by individuals
pursuant to an employer-employee
relationship;
J. Services rendered by regional or area
headquarters established in the
Philippines by multinational
corporations which act as supervisory,
communications and coordinating
centers for their affiliates, subsidiaries
or branches in the Asia Pacific Region
and do not earn or derive income from
the Philippines;
K. Transactions which are exempt
under international agreements to
which the Philippines is a signatory or
under special laws except those
granted under P.D. 529-Petroleum
Exploration Concessionaires under the
Petroleum Act off 1949;